Entries from July 2017 ↓

Our prime minister is a feminist. That’s cool. Sometimes society needs a kick in the ass to correct. The comment section of this blog should be so lucky.

Insisting on gender parity in the makeup of your cabinet is one thing. (There may be a case for sex-based leadership as opposed to merit-based choices. Let’s leave history to decide that.) But having sex-based taxes may be going too far. In fact, there’s no doubt. That would mock equality.

Yesterday this pathetic, carbon-based, apologetically manly blog discussed the looming tax crush on small business owners and incorporated professionals. The feds plan to wipe away the ability of entrepreneurs to income-split with spouses or to build their own sheltered retirement fund inside their business. You got some attitude on that.

But the 63-page treatise that FM Bill Morneau unleashed is memorable for other things that it says – namely, that this overhaul of the tax code will subject to “gender-based analysis.” In other words, the feds are asking: should men and women be taxed differently? Seems we may be headed in that direction. In the name of fairness, of course. And a vibrant middle class. (With guys paying more.)

Anyway, here’s exactly what Ottawa has just stated:

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What shall we read into this?

Hard to say. There’s the not-so-subtle data dump showing men are disproportionately targeted for higher taxes because most entrepreneurs and business owners (70% or so) are dudes. Therefore dropping the hammer on income-sprinkling or retained earnings will impact them far more than women. No big surprise there. Mars and Venus. When human nature changes we can rewrite lots of laws.

But what’s new here is gender-based analysis of stuff that may bear no relation to sex. Should male and female doctors with professional corporations have differing tax treatments afforded them? Will a hundred grand saved inside a female entrepreneur’s corporation be taxed at a different level because her gender means a longer life expectancy and as compensation for the income gap T2 speaks of routinely?

When Bill Morneau says, “A detailed analysis of the gender impacts of the proposal that relates to passive income will be conducted before the Government decides on the final design of the new tax rules,” what does that mean? If most businesses are owned by men, won’t they be the most impacted?

This page in Ottawa’s landmark tax document may mean nothing. It might mean everything. Using the tax code to encourage behaviours like saving, investing or starting a business is well-established and understandable. Using it for social engineering and to further the cause of feminism – as noble and media-worthy as that may be – is radical.

It’s the 63-page detailed discussion document on exactly how Ottawa intends to gore small business owners and incorporated professionals, including doctors, lawyers, dentists and the guy who fixes your furnace. You have until just before Thanksgiving to submit your thoughts, and here’s the addy: [email protected]. Try to contain yourself when you do so. Telling the Minister of Finance what he can do with his orifices is generally frowned upon.

As you know, Ottawa is doing exactly what this blog warned you a year ago was coming. Soon the hammer will come down on business owners or medical professionals who income-split with spouses or family members, as well as the common practice of building up retirement savings within a corporation. Bill Morneau is serious. The consult period is, of course, a stunt. These moves will be effective with the 2018 taxation year.

Now, why is it necessary to suddenly pull the rug out from under people who have been legally using small businesses to defer tax because they lack pensions or benefits and shoulder greater risk (while creating jobs)? Huh?

Here it is: “The Government is considering approaches that will improve fairness and neutrality of the tax system, such that savings held within corporations are taxed in a manner that is equivalent to savings held directly by individuals, for example salaried employees.”

This resonates with T2’s Millennial voter base, since the moisters today seem over-educated, late-maturing, helicoptered, under-employed and non-entrepreneurial, while believing in fictions like a shared economy. Overwhelmingly, the young have become risk-averse. They see ‘fairness’ as meaning every dollar should be taxed equally, regardless of the risk or effort needed to earn it, and they’re hot about equality. More on that quacking canard later.

But tax codes are not about social justice. They’re meant to build economies while raising the money to run government. Tax rules have always been designed to encourage behaviours. That’s why you get a tax credit for making an RRSP contribution, for example, because without that carrot far fewer people would save for their futures. It’s the same principle behind getting a grant when you invest money for your kid’s schooling. Or why capital gains are taxed less when you take on risk and invest in stock that could rise or fall in value.

There have always been larger rewards (in the form of lower taxes) to encourage activities people would be reluctant to be engaged in otherwise. Like starting a dog grooming business and hiring two assistants. Or completely losing your mind, rebuilding a crumbling pile of bricks and opening an ice cream parlour. Or maybe spending 12 years in med school and residency, amassing $300,000 in student debt, then building a career as a doctor. In all of these things not only is the risk higher than that which salaried employees normally take, but there are no pensions, no paid vacations and no benefits.

Starting a business and creating jobs usually involves shovelling life savings into an enterprise or a professional office, taking on debt, shouldering big insurance costs, paying your workers’ EI and CPP, collecting and paying tax, then hoping you don’t crash and burn (which most do). The reward for all this investment and risk (instead of just being a employee) is the potential for success and a tax break for trying.

Until now. The Liberal government now seeks to make every dollar taxed equally. Neutrality, Bill Morneau calls it. Money hard earned and held inside a small business should be taxed as if had been paid, no risk, to a salaried person. In T2’s world we’re all equal. When we aren’t. Not even close.

Well, income-splitting will be toast next year. Impacted will be medical professionals who will be looking for higher compensation, shorter hours or other jurisdictions – since the ability to split income with a spouse compensated for a truncated career and zero pension.

Gone, too, will be the ability to effectively build a retirement nestegg within a corporation, the way salaried people do inside the registered pension plan offered by their employer. Ottawa is studying several models to ensure that money a business has already been taxed on has its growth taxed at the highest personal marginal rate prior to being available to the retiring business owner. It may also increase business tax rates to about 50% on any earnings not immediately reinvested in the business. In short, the goal is fairness between boss and worker. And it makes you wonder, why would anyone want to be the boss?

Finally, the government is studying differing taxes for men and women.

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.